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Gold & Silver; Sandwiched!

Bullion Round Up

Early next week, we expect a quiet market as the Chinese celebrate the Dragon Boat Festival with holiday from Monday 10th to Wednesday 12th of June. We expect book squaring today as it is end of the week and expect a quiet Asian trading session. However, we cannot promise that prices will be quiet as when Europe and American open. The long awaited NFP data is highly anticipated but we are well aware that investors are staying on the side line. Traders tend to keep light positions or take no position at all as they expect extreme volatility. Fed officials have been lamenting on the importance of the next few rounds of economic data that could help in their decision to taper or not. The dollar index will play a key role as it continues to face downward pressure. Despite that, gold have not been able to break higher on falling dollar index and a possible corrective stance in equities.

The Indian government has once again raised import tax on gold, the problem that demand remains strong. Regardless of the increase in tax, Indians continue to acquire the yellow metal. No doubt prices will increase in the retail sector and the jewellers association will start complaining about the increase in price that could dampen demand and soon paralyze the gold and jewellery community. It is clear that there is a growing distrust to place savings in the financial institutions and the lack of other alternatives could not deter the demand for gold. Meanwhile, Bloomberg reports the small increase in gold ETFs holdings. This seems to indicate that selling interest has decreased and could stay flat in the near future. However, we do not discount out that buying interest could pick up once again if and when investors’ confidence is back.

Our short term outlook remains unchanged at the moment. The next direction on gold and silver remains data orientated and we stand by our previous short term outlook on gold remains murky as prices trade in the range of $ 1380 to $ 1420. It is becoming a repetitive ritual that one must short gold if it re-enter or break above $ 1400. The short sellers have interest to do so and this indicates that a break above $ 1425 will encourage more short covering. On the other hand, a break below $ 1380 could spell trouble and selling pressure could increase again. The risk to the downside remains but short term trading favour a higher gold price. If the situation permits, a weaker dollar index, correction in equity, increase uptake on ETFs product and with a decent physical demand may help gold retest resistance at $ 1424 area. However, our long term projection is to see this small rebound to falter and gold to retest previous low at $ 1321 or even lower.

Gold Technical

We have been waiting for a breakout on gold as prices continue to trade between $ 1390.00 to $ 1410.00 areas in the early Asian trading hours. A bloody selloff in the dollar index and falling equities were the catalysts that help gold prices to rise higher - away from the tight range that has kept it directionless. It break previous high to reach $ 1423.88 before retracing lower as short sellers continue to protect that resistance level. We felt that the market has taken an early decision before the NFP data. In addition, the ECB press conference by Mr Draghi gave the market to start unwinding their long positions. European stocks tumbled and the Dow and S & P were not spared.

Looking forward, a short term rally in a bear market is to be expected. Another bout of short selling opportunities is in the making and we would not be surprise that resistance at $ 1487.00 will be strong. Gold will try to break above $ 1425.00 but will then face a period of consolidation before taking out $ 1440.00. A period of short covering in the next few weeks could help propel a higher price but we are not surprise to hit resistance and went back down to $ 1321.00 again.

Resistance: $ 1423, $1437, $ 1438 Support: $ 1384, $ 1373, $ 1325

Traders Notes: Longs are taking positions at $ 1391, $ 1398, $ 1400, $ 1406 and $ 1414 with a stop loss ranging from $ 1373, $ 1385 and $ 1390 area. Profit target sets at $ 1410, $ 1424 and $ 1460 area.

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-3 months)
Bullish - target $ 1425 at least Bullish - target $ 1460 Bearish - target $ 1280

Silver Technical

We are disappointed that silver did not manage to break higher or at least a retest of $ 23.00. It has all the right catalysts to break higher but the lack of buying dampen the Bull Run and it retraced lower after hitting a high of $ 22.90. Technically, the silver market continues to trade in a downtrend and it currently managed to break above its 20 DMA may give the bulls some confidence. In addition, the RSI is showing a divergence as it rose with falling prices which could well indicate that short sellers are exhausted. It has got rooms to move higher but it could continue to trade in this range of $ 22.00 and $ 23.50. Only a break above $ 23.35 will it encourage the bears to do more short covering.

Resistance: $ 23.19, $ 23.35, $ 25.59 Support: $ 22.37, $ 19.66, $ 19.00

Traders Notes: Longs are taking positions at $ 22.40 area but with a wide stop loss at $ 21.75. Potential profit area comes in at $ 23.20 area and others are targeting higher numbers.

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-6 months)
Bullish - Break $ 23.19 Bullish - Retest $ 24.50 Bullish - a potential bull run?

This article is written according to the author’s views and by no means indicates investment purpose. Opinions expressed at Sharps Pixley Ltd are those of the individual authors and do not necessarily represent the opinion of Sharps Pixley Ltd or its management, shareholders, affiliates and subsidiaries. Sharps Pixley Ltd has not verified the accuracy of any claim or statement made by any independent writer and is reserved as their own and Sharps Pixley Ltd is not accountable for their input. Any opinions, research, analysis, prices or other information contained on this website, by Sharps Pixley Ltd, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. Sharps Pixley Ltd will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The data contained on this website is not necessarily real-time or accurate. 

07 Jun 2013 | Categories: Gold

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